Japan's preferential tariff treatment of imports from relatively rich countries and regions, including South Korea, should be gradually eliminated beginning in fiscal 1998, an advisory panel said in a report released Friday.

The report from the Customs Tariff Council submitted to Finance Minister Hiroshi Mitsuzuka says the generalized system of preferences, or GSP, should be phased out for developing economies that have become "high-income countries" under World Bank standards. These nations are those with an annual per capita income of more than $9,386 as of calendar 1995, and Finance Ministry officials said five economies would meet this classification in fiscal 1998 -- South Korea, Taiwan, Hong Kong, Singapore and New Caledonia.

Friday's report says the favorable tariffs currently in effect for certain imports from these countries should be scrapped in fiscal 1998 and that elimination of preferential treatment on all imports from high-income nations should begin from fiscal 2000. Japan adopted the GSP program, which currently applies to 180 economies, in 1971. Under the GSP, lower tariffs are levied on certain imports from these countries, with some goods enjoying tariff-free entry.

The report adds, however, that annual reviews should be made so nations would be put back into the program if their income levels again fall below the World Bank benchmark. The council also proposed that the government set up duty-free shops in Okinawa at which those leaving the island prefecture would be entitled to purchase up to 200,000 yen worth of goods.

Special tax treatment should also be given to factories in Okinawa's free trade areas, it says. The report also says tariffs on distilled spirits such as brandy, whiskey, gin and others should be gradually reduced until they are scrapped in fiscal 2002.